Asymmetry in quasi-fixed exchange-rate systems |
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Authors: | James M. Henderson |
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Affiliation: | University of Minnesota, Minneapolis, Minn. 55455, U.S.A. |
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Abstract: | A stochastic model of an international payments system is formulated with the assumptions that: (1) international reserves are held in the form of a key currency; (2) fixed exchange rates are subject to infrequent change; (3) deficit countries depreciate more readily than surplus countries appreciate. The model is implemented with historical data. Time paths for international reserves and prices under alternative assumptions are secured through Monte-Carlo simulation. The paths show that anti-inflationary policy by the key-currency country — viz, the United States — is easily multiplied by exchange-rate changes by other countries. |
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